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The Biden administration is leading a crackdown on what it calls “junk fees,” surcharges stretching across industries—everything from bank account overdrafts to airline seating upcharges to extra costs tacked on to concert tickets. The administration defines junk fees as those “designed either to confuse or deceive consumers or to take advantage of lock-in or other forms of situational market power.” President Joe Biden has repeatedly called on federal agencies, Congress and some of the country’s largest companies to take action, arguing that such fees make comparison shopping difficult and exploit consumers.

This war on junk fees may have you fired up, but will it save you money? Not necessarily, said Amit Bhattacharjee, associate professor of marketing at the Leeds School of Business. Bhattacharjee discusses the fairness of fees, the value of transparency and what you can do to be a smarter consumer.

Amit Bhattacharjee 

What is your take on junk fees?

For a given product, these fees are not a huge component of the price. They’re annoying to people and they’re an easy political target, so I think it’s a politically expedient move on the administration’s part at a time when people are worried about inflation, economic inequality and consumer spending power. This is easy to present as a concrete way to stand up for the little guy against the big, powerful corporations that are trying to exploit them at every turn.

The political motivations here are much more sound than the economic motivations. The psychological appeal here is easy enough to see. And some parts do seem clearly beneficial for consumers, such as the general push for transparency regarding the terms of transactions. But otherwise, when you look at the economic outcomes it’s likely to bring about, it’s not clear that this sort of legislation would be effective or end up being a net positive for the most vulnerable or disadvantaged consumers.

Why is that?

Take partitioned pricing, which is separating prices into different line items. As long as the expectations are clear upfront and the fees aren’t hidden, it actually increases transparency in itself.

People don’t have a clear sense of the different costs that businesses incur, so better clarifying the cost structures underlying the services they provide—that’s not necessarily a bad thing. But if you prevent them from charging fees to cover those costs, it’s not like you somehow eliminate the costs themselves. Companies still have to incur them. But if they can’t selectively charge fees to certain consumers or in certain situations and have to lump them into one uniform, all-inclusive price, that price will inevitably be higher for everyone else. It’s hard to legislate away economic realities.

Where this could be a problem is in the micromanaging of business practices, where they’re determining who can be charged what or what constitutes an excessive fee. Those sorts of subjective calls made by less-than-fully informed outsiders could end up having harmful unintended consequences.

What are the consequences for consumers?

Some of these fees serve important economic functions. For instance, they deter behaviors that cost businesses more—overdraft fees at banks, for example. They cost banks money, increase the risks they face and disrupt their operations. If you don’t allow them to charge people for overdrafts, then you don’t discourage that costly behavior, and everyone else ends up being forced to subsidize it. The bank still has to cover those costs, and they’ll pass them on to consumers one way or another. It’s just a question of who’s going to pay them—which consumers, that is.

Fees like that are well-targeted in the sense that the people who are increasing costs have to pay those costs. If you never pay an overdraft fee, you should be glad they exist. That means the costs of this behavior are borne by the people who engage in it, and those costs would otherwise fall on you.

What about all the extra fees attached to airfare?

With airline tickets, another helpful concept to consider is price bundling, which means there are multiple things included in the ticket price that you can’t opt out of. The real benefit of bundling from a consumer standpoint is not economic—that is, it’s not saving you money at all. It just simplifies the transaction. You know what to expect. It’s one uniform offering, and that has its benefits. But it does increase the base price everyone has to pay.

Take “seat selection” fees, one of the things Biden mentioned. In general, people have different preferences, different budgets and a different willingness to pay for all sorts of things. And on flights, there are a lot of people who don’t care where they sit. But forcing airlines to make seat selection a standard part of the price will increase prices for all of them. Budget carriers that unbundle and separate out fees for seat selection and other add-ons means ticket prices can be lower for everyone else. That is clearly a good thing for people who could not afford to fly otherwise.

A lot of the annoyance comes from people’s expectations of what a basic offering should include. But there are budget carriers with bare-minimum basic offerings and full-service carriers whose ticket prices include many more services. Given how much preferences and budgets vary across people, having both options is far better for everyone, especially those with the tightest budgets who benefit most from those budget options being as inexpensive as possible.

Should consumers adjust their expectations? What can they do when fees really do seem unfair?

Adjusting expectations is part of it, but it’s more about reframing these situations to reflect the economic realities. Feeling nickel-and-dimed is annoying, but consider the fact that it gives you the option to opt out of things you don’t want. On the flipside, all-inclusive options bring you peace of mind and free you from endless strings of little purchase decisions. But that peace of mind is something you’re paying a premium for. That’s important to realize because you don’t always get to see the lower price you’d pay otherwise.

As for what else consumers can do, there are tons of independent review sites. Social media has become a public forum for consumers to complain about things that are unfair, where everyone can hear about it and see how companies respond. Even if a company is not being transparent, chances are you can find out somewhere else.

You have more resources and information than ever before. Putting pressure on businesses to provide transparency and using public forums and review sites to hold them accountable serve as an important mechanism to get firms to change their practices. And of course, you can buy only from firms that do. In competitive industries, that can often be a more effective alternative than waiting for legislators to take care of things, and one with fewer unintended consequences.